The following Figure 1 shows the original Real Equilibria in an Open Economy. Suppose the government in this open econom

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The following Figure 1 shows the original Real Equilibria in an
Open Economy. Suppose the government in this open economy cuts
spending to reduce the budget deficit. Consider the United States
as the domestic market.

The Following Figure 1 Shows The Original Real Equilibria In An Open Economy Suppose The Government In This Open Econom 1 (92.76 KiB) Viewed 36 times

I. In the Market for Loanable Funds:
a. Choose the correct answer for the highlighted parts:
1. Decrease in Government
Spending increased/decreased/does not
change (your answer)
the Demand/Supply (your answer) of
Loanable Funds
2. Demand/Supply (your answer) curve shifted to
the left/right/ or unchanged (your
answer)
3. Equilibrium Interest Rate
increased/decreased/unchanged (your
answer); Equilibrium Quantity of Loanable
Funds increased/decreased/unchanged (your
answer)
b. Show the market outcome of decreasing government spending on
Figure 1(a) (make sure you label the lines and dots you draw) (3
points) (as a self-practice here).
II. In the Relationship of Net Capital
Outflow:
a. Choose the correct answer for the highlighted parts:
1. NCO curve shifts to the left/right/ or
unchanged (your answer)
2. Real Interest Rate
increased/decreased/unchanged (your
answer); Quantity of Net Capital
Outflow increased/decreased/unchanged (your
answer)
b. Show the market outcome of decreasing government spending on
Figure 1(b) (make sure you label the lines and dots you draw) (3
points) (as a self-practice here).
III. In the Market for Foreign-Currency
Exchange:
a. Choose the correct answer for the highlighted parts:
1. Decrease in Government
Spending increased/decreased/does not
change (your answer)
the Demand/Supply (your answer) of
Loanable Funds
2. Demand curve shifted to the left/right/ or
unchanged (your answer)
3. Supply curve shifted to the left/right/ or
unchanged (your answer)
3. Equilibrium Real Exchange Rate
increased/decreased/unchanged (your
answer); Equilibrium Quantity of
Dollars increased/decreased/unchanged (your
answer)
b. Show the market outcome of decreasing government spending on
Figure 1(c) (make sure you label the lines and dots you draw) (3
points) (as a self-practice here).
(a) The Market for Loanable Funds Figure 1 (b) Net Capital Outflow Real Interest Rate Supply Real Interest Rate X 11 Demand Net capital outflow, NCO Quantity of Loanable Funds Net Capital Outflow Real Exchange Supply Rate E Demand Quantity of Dollars (c) The Market for Foreign-Currency Exchange